Compliance: Tell me how to read an environmental report

Every person with environmental experience can describe how he or she reads environmental reports, but anyone who purports to write a primer on how to read and interpret an environmental report is being unrealistic and more likely making a vain attempt to attract your attention. The fact is, reading an environmental report involves experience and a good working relationship with clients, and the first step is to discuss the client’s expectations.

Environmental reports mean different things to different people, at different stages in a transaction and at different stages of property ownership (sale, lease, security or sale). Scientists are generally ineffective lawyers, but remarkably talented at identifying conditions. However, whether those conditions amount to liability or regulatory responsibility is a legal question requiring the legal skill, education, training and experience of an environmental lawyer.

Clearly, environmental reports are designed to provide admissible evidence. While transactions are not involved in litigation, every instrument prepared, reviewed, signed and recorded at or associated with a transaction is for the express purpose of documenting that transaction with admissible evidence, for use in the event there is a need to enforce the parties’ understanding after closing. Similarly, environmental report(s) must provide admissible evidence and should not be analyzed as eighth grade science papers with symbols and calculations that need to be translated.

Next, it is critical to understand what is described in environmental reports and what is glaringly missing — especially in those reports related to transactions. The standard form Phase I Environmental Site Assessment Report has its genesis in laws written by Congress and state legislatures and interpretative rules issued by federal and state environmental agencies with no real transactional experience. Nonetheless, an environmental investigation must be performed by an environmental professional, include appropriate interviews, and include a review of appropriate historical and title record and cleanup liens. In addition, appropriate public databases must be included in the investigation together with a site visit. Finally, a written report must be prepared with analysis of the purchase price, the sophistication of the user of the report and the degree of “obviousness” of potential contamination. Finally, the report must provide conclusions in the form of Recognized Environmental Conditions (RECs), Data Gap Considerations and the Qualifications of the Environmental Professional.

As evidence gatherers, it is also important to note what is not included in the standard form investigation. Specifically, there is no analysis of asbestos-containing building materials, lead-based paint risk, radon, wetlands, permit compliance or potential statutory environmental cleanup liability associated with arranging for the disposal of a hazardous substance off site (a significant concern transactions involving “going concerns”).

While ASTM International has published a standard to provide the semblance uniformity in the investigation and the form of the environmental report, and while the U.S. Environmental Protection Agency has formally accepted the methodology as an acceptable “all appropriate inquiry,” no one should merely accept the conclusions. Indeed, was the investigation an “all appropriate inquiry” remains a legal concern, as is the quest for admissible evidence that supports the conclusions?

Just as scientists and engineers are not lawyers and should not opine as to statutory environmental cleanup liability (or, the “innocent purchasers” defense: concluding that the report qualifies as an all appropriate inquiry to satisfy one of the statutory exemptions described in federal and state law), a group of scientists should not be considered the final word on the adequacy of the scope of the investigation. As lawyers, let’s examine what we are told.

A Recognized Environmental Condition (REC) is the presence or likely presence of a hazardous substance or petroleum under conditions that may indicate a release, a past release, or a material threat of a release into structures or on the property or into the ground, groundwater, or surface water at the property. This is the conclusion that requires further analysis. Again, the ultimate conclusion of liability rests with the lawyer, and the lawyer’s analysis of the evidence that supports that conclusion.

A Historic REC is a “past release” of hazardous substances or petroleum that have been adequately addressed to the satisfaction of the regulatory authority, or which is found to meet unrestricted and unconditional residential criteria established by the regulatory authority. Previously HRECs were thought to have failed to describe the condition, and earlier reports may not adequately describe the critical “continuing obligations” imposed on “bona fide prospective purchasers.” Indeed, a reported HREC likely begins another discussion with the client concerning the prospective use of the site. The conditions described by the EPA in the closure letter may be wholly inconsistent with the prospective use of the property and may even void the closure letter issued by the agency. That condition may be described as Business Environmental Risk — a condition that may have a material impact on the business associated with the current or planned use of the property.

A Controlled REC is a past release that has been addressed according to appropriate regulations, and which is allowed to remain in place because of appropriate engineered removal actions, engineered barriers (e.g., pavement, building slabs or other impermeable surfaces) and/or institutional controls (e.g., deed restrictions, approved ordinances and the like). The CREC remains a REC and does not imply that the environmental professional has evaluated or confirmed the adequacy, implementation, or continued effectiveness of the existing or proposed control. Buyer beware.

A Conditional REC describes the presence of residual contamination that is allowed to remain based on risk-based corrective action objectives (and/or the presence of engineered barriers and institutional controls), but there is a concern that some of the residual contamination in the form of volatile organic compounds (VOCs) in the soil and/or groundwater may volatilize (i.e., turn to gas) and migrate to the surface and eventually seep through concrete building slabs into occupied spaces inside buildings. In other words, the risk is vapor intrusion, and, again, buyer beware.

Some seem oddly satisfied if the reported condition is not described as a REC. However, simply reviewing the Executive Summary or jumping to the end of the report to review the conclusions does not excuse reading the entire report in detail. Again, we are looking for admissible evidence not just conclusions (that may or may not be supportable).